G&W profits continue to slide in Q3 2016

Darien, Conn.-based short line railroad operator Genesee & Wyoming Inc. reported net income of $56.8 million on revenues of $501 million during third quarter 2016, year-over-year decreases of 10.4 percent and 8.3 percent, respectively.    Genesee & Wyoming Inc.’s earnings in the third quarter of 2016 dropped 10.4 percent to $56.8 million compared with the same 2015 period as volumes declined across all regional operating segments, according to the company’s most recent financial statements.
   The Darien, Conn.-based short line and regional railroad operator saw diluted earnings per share (EPS) fall to $0.98 per share with 58.2 million weighted average shares outstanding, compared with $1.10 per share in the third quarter of 2015.
   Operating revenues for the quarter dropped 8.3 percent to $501 million compared with third quarter 2015.
   G&W’s North America segment, which generally represents about 80 percent of its annual operating income, generated $87.2 million in operating income in Q3 2016, a 3.8 percent decline from the previous year, on revenues that slipped 1.4 percent to $310.2 million.
   North American Operations traffic slid 4.2 percent to 401,999 carloads in the third quarter of 2016 as shipments of coal and coke, chemicals and plastics, intermodal containers, metallic ores, metals, minerals and stone, petroleum products, and pulp and paper all fell from prior year levels.
   Operating income in the company’s Australia segment (about 10 percent of overall annual operating income) plummeted 70.8 percent year-over-year to $4.4 million on revenues that fell 11.2 percent to $54.2 million, primarily due to the loss of a fixed fee payment from a shuttered iron ore mine customer and lower metallic ore shipments.
   Australian volumes fell 10.3 percent to 48,532 carloads in the third quarter thanks to declines in agricultural product traffic, metallic ores, minerals and stone, and intermodal.
   The company’s U.K./Europe unit (also representing 10 percent of G&W’s annual operating income) swung to an operating profit of $0.3 million compared with a 1.2 million loss in Q2 2016 and operating income of $12 million in third quarter 2015 following the restructuring of the company’s U.K. coal business. Revenues in the segment stood at $136.7 million for the quarter, a 20 percent decline, primarily due to the impact of foreign currency depreciation and lower coal and intermodal traffic.
   Volumes in the U.K./Europe segment slipped 3.4 percent to 294,283 carloads in third quarter 2016 due to decreases in coal and coke traffic (primarily in the U.K. and Poland), and intermodal, which were partially offset by increases in shipments of minerals and stone.
   G&W President and CEO Jack Hellmann said the third quarter results were in line with company expectations.
   “In North America, better than expected steam coal shipments combined with strong cost controls yielded a better than expected operating ratio of 71.9 percent,” said Hellmann. “In Australia, financial results were in-line with our outlook as we continued to effectively manage costs in the weak commodity environment. In the U.K./Europe, our financial results in the first full quarter since we restructured the U.K. coal business were below our expectations for three reasons: congestion in the port of Felixstowe, which weakened U.K. intermodal shipments; unscheduled reductions in U.K. infrastructure services; and weak performance from continental European intermodal.”
   He added, “Looking to year-end, our priorities by region are threefold. In North America, we remain focused on maximizing cost efficiency amidst an uneven economic environment. In Australia, we expect to close on the recently announced acquisition of Glencore Rail and the concurrent issuance of a 49 percent equity stake in our Australian subsidiary to Macquarie, in a transaction that yields a highly competitive Australian growth platform going forward. In the U.K./Europe, we continue to restructure the continental European business and to reduce costs in the U.K. Despite the weak third quarter, we see a clear path to improvement in the U.K./European segment as we finish the year and enter 2017.”
   G&W in the past three months has announced the acquisition of Australia’s Glencore Rail for $856 million, expected to close Dec. 1, and the $126 million purchase of Providence and Worcester Railroad, which closed earlier this week.
   “In addition, we continue to be active with a significant pipeline of acquisition opportunities in multiple geographies for which we are maintaining close working relationships with potential financial partners,” said Hellmann. “The broad reach of our global rail footprint is yielding an increasing number of contiguous or adjacent investment opportunities.”